People believe and think that you need money to make money. There is a misconception that you need to have a lot of liquid cash or access to large pool of savings.

While this may be true for the conventional property investor, it is certainly not true of a creative and well-informed investor. I have bought multiple properties without having to put any of my own money into the purchase.

The truth is you need to be creative to make money and the solution to that is the simple two-letter word GO!

That stands for the two most powerful wealth words in property investment:

Gearing
OPM (Opium!)

When it comes to making money from property, I just love Opium! It stands for Other People’s Money!

Let’s look at each of those in turn.

Gearing

Gearing is one of the key secrets to making money from property investment.

Let’s say you have £100,000 in ready funds available to buy a property.

You can choose to use that money to buy a property for cash costing £100,000 if you wish. Clearly, if you follow the right strategies, you will be buying a property that’s worth a bit more than that but the growth you enjoy will be on the £100,000.

Alternatively, you could use that £100,000 as a deposit and borrow some money so that you can buy a much bigger property. Remember, this will be good debt!

For example, if you use that money as a 20% deposit, you can buy a £500,000 property.

Purchase Price	£500,000
Deposit (20%)	£100,000
Loan (80%)	£400,000

In this case, we say your gearing—or loan—is 80%.

If you choose to borrow a higher percentage, you are said to be more highly geared. For example, if you choose to make a 10% deposit, you will have 90% gearing.

Let’s look at the difference gearing could make to the returns you enjoy, depending on whether you choose to use gearing or not.

Property A (No gearing): £100,000
Property B (Gearing): Use the £100,000 as a 20% deposit on a £500,000 property

	Property A	Property B
Cash invested	£100,000	£100,000
Amount Borrowed	0	£400,000
Property Value	£100,000	£500,000

We’ll assume each property grows in value by 10% a year.

The chart below shows how the two properties grow in value over several years.

After 20 years, Property A is worth £672,750 but property B is worth £3,363,750. So you can see that using gearing to buy a much bigger property leaves you significantly better off:

£644,000 better off after 5 years.
£1,037,497 better off after 10 years.
£1,671,000 better off after 15 years.
£2,691,000 better off after 20 years.

The key to making gearing work most effectively is that you must be able to rent out the property and generate rental income that covers your mortgage payments and other expenses. That way, gearing gives you potential for enjoying very significant growth for no additional outlay on your part.

The higher your gearing, the greater your potential to share in growth. However, higher gearing also means higher borrowing costs and this can mean it is more difficult to cover your costs from the rental income.

This is one factor you will have to take into account in deciding the level of gearing you want to go for. Another factor will be that banks and finance companies will often require a minimum level of deposit of 10% or more.

The formula for working out how much gearing can increase the value of property you buy is called the Potential Property Purchase.

Potential Property Purchase = Deposit Amount / Deposit % (where the deposit percentage is expressed as a decimal).

For example, if you have a deposit of £100,000 available and plan to make the deposit 20%, your Potential Property Purchase is:

£100,000 / 0.20 = £500,000

On the other hand, if you want to make the deposit 15% of the total, your Potential Property Purchase is higher:

£100,000 / 0.15 = £666,667

Choosing only a 5% deposit would allow you to buy a £2,000,000 property.

OPM (Other People’s Money)

The other way of building your property portfolio when you have limited funds available is to use what I call Opium—quite simply, Other People’s Money.

This can be useful if you do not have funds available for a deposit or if you have a bad credit rating that stops you getting financing on terms that are attractive enough to you.

There are several ways of being able to create wealth from property without putting in your own funds.

Often it involves you putting in some sweat and leg work (“sweat equity”) and then sharing the profit with someone who has the cash available but doesn’t have the time, knowledge, or inclination to get involved in property investment.

For example:

Mortgage Hosting: This is where you find a great property deal and arrange for someone else to take out the mortgage on it. You then agree with them an appropriate share for each of you of the surplus rental income and of the increased value when it comes time to sell.

Option Agreement: This is where you find someone who cannot sell their property—typically they will not have much equity in the property. There are many people in that situation.

You take a three- to ten-year option to purchase the property at today’s agreed price. You will benefit from any equity increase during that period and any surplus rental income.

When you follow the appropriate steps, this is a secure arrangement for both the seller and the person taking out the option.

Profit Share: This is another approach where you find someone else to finance a property purchase and then plan to do a BRS—Buy, Refurbish, and Sell.

You do all the work in finding, renovating and then reselling the property while they provide the finance. You split the profit on an agreed basis.

These are just some of the options available that allow you to get involved in the profit potential of property investment if you don’t yet have your own funds available.

The profits from these approaches may not be as appealing as when you are able to get the full benefits of gearing. However, one of these strategies may be a good first step in your property investment career.

And while the potential profits may be less than for full property investment with gearing, the benefits compare favourably with many other types of investments.

When with some other types of investment you might be lucky to get a 3% return on your money before tax, being able to earn a return of 10%, 15%, 20% or more is very appealing.

Property investment offers many strategies that give you the chance to make money without having money. You might be surprised how you can start to see results very quickly when you are willing to invest in your financial education and take action.

76. Property Profit Secret 5: Pay Creatively